Paul Krugman’s doubts

The Washington Spring — 3 —

Those keen to follow closely America under Obama would do well to keep an eye on a number of warning lights. On the international front, there is the war in Afghanistan, the crisis in Iran, the peace efforts in the Near East and the policy towards Africa; on the domestic front, there is the economic recovery, health-care-system reform and so on. The list of indicators is long and I won’t cover all of it. On those matters I know a few things about, I will give my assessment every now and then, and amend it when either the situation or my view of events changes. On the many matters about which I know little, I will avoid expressing personal opinions, though I may recommend something worth reading from time to time.

The economy is a case of the latter. I don’t feel qualified to disentangle its many threads. Yet, since it is such an important issue that affects all our lives; and since it is the focus of ongoing, worldwide trouble; and because it is a matter on which Barack Obama’s administration cannot allow itself to fail, it is only natural that the conscientious observer pay it close attention.

Paul Krugman, winner of the Nobel Prize in Economics and a leading authority on the subject, has expressed his qualms about the economy. Krugman is a ‘liberal’ in the American sense — which, as everyone knows, means the opposite of the French definition. He is in favour of allowing the public authorities to play a significant role in the economy in order to offset the market’s influence. His benchmark work is entitled The Conscience of a Liberal1. The book is essential reading and should inspire all those looking for a middle road between the failed policy of interventionism and that idolatrous faith in market rule, which has unquestionably shown its limitations.

In his book, Krugman brilliantly develops a number of appealing ideas. He writes, for instance, that the American reaction to the Great Depression of 1929 was the “Great Compression” — of income — a process that turned the nation into a vast middle class. It is this America, he says, which was able to burst into patriotic and ethical action during the Second World War, to defeat Nazism.

Krugman writes that under Reagan, the United States returned to a time of inequality. Little by little, he says, the country unravelled its social fabric, became demoralised, and distorted the meaning of patriotism. The United States under ultra-conservative rule has led dubious wars such as the one in Iraq, where the majority of troops were young immigrants whose only motive was to obtain citizenship a little more quickly, and where countless activities were sub-contracted to private businessmen whose only motive was to grow rich on the army’s back.

The author concludes that as much as the conservative Republicans try to outdo their rivals in patriotism and accuse their adversaries of being ‘un-American’, their posturing is belied by the facts, namely that the American right cannot win a war, while the America born of the bold New Deal set up by Franklin D. Roosevelt was able to do so, brilliantly.

Krugman turns all the arguments that American conservatives have developed over the last thirty years against them. He advocates a steadfastly social capitalism, not just out of ethical concern, but also because it allows both the economy and international relations to be managed more efficiently, and because it allows democratic institutions to run smoothly.

It is no surprise, then, that Krugman expressed his disapproval very soon after Barack Obama presented his economic recovery plan. He found the plan timid, fearful and insufficient. He felt that the new president hadn’t dared take on the establishment, or Wall Street.

That Obama revealed himself to be prudent – extremely prudent — and that he didn’t choose to follow the bolder road that Krugman advocates, is indisputable. But was he wrong to do so? Will he regret it one day, as Krugman implies in his articles? It is hard to say. On the one hand, one can understand that the newly elected president, immediately confronted by a major crisis, didn’t want to risk turning the system upside down. On the other, I think it makes sense to ask, as Krugman does, if we can really face a major crisis without making a real break with the practices that led to the disaster in the first place.

The debate is of capital importance and far from over. I will continue to follow it closely, and to comment on it in these posts.

(First published in French on July 18th).

His blog, hosted on The New York Times website, bears the same name. [↩]

This entry was posted on Thursday, September 3rd, 2009 and is filed under The Washington Spring. You can follow any responses to this entry through RSS 2.0.
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